The dollar continues its downward 30-year super-trend against the yen. The Bank of Japan (BOJ) appears unable to support the dollar at current levels and breakout below ¥80 warns of a decline to ¥70*.
* Target calculation: 80 – ( 90 – 80 ) = 70
Japan Unveils Measures on Yen Strength – WSJ.com
The government aims to “soften the pain” from the strong yen and keep it from leading to more “hollowing out” of Japanese industry, the plan says. It calls for expanding and extending funds for key industries that create jobs, as well as expanding training for workers and the unemployed.
It also urges expansion of financial support for small- and medium-sized businesses, many of which have been hit hard by the currency’s surge.
The government also revealed measures intended to exploit the strong yen’s merits, implicitly acknowledging the limits on Tokyo’s ability to weaken the currency.
The plan proposes support for Japanese companies conducting mergers and acquisitions overseas, as well as for development of overseas natural resources and energy supplies, which the strong yen could help make cheaper.
Tokyo also wants to make the benefits of the strong yen apparent to consumers in areas such as electricity and gas utility prices, and calls for the implementation of a survey of consumers on the merits of the currency’s rise.
IMF Survey: Weak and Bumpy Global Recovery Ahead
The risks to the global economy are many, but three in particular demand strong action by policymakers:
• In the euro area, banks must be made stronger, not only to avoid deleveraging and maintain growth, but also, and more importantly, to reduce risks of vicious feedback loops between low growth, weak sovereigns, and weak banks. This requires additional capital buffers, from either private or public sources.
• The top priorities in the United States include devising a medium-term fiscal consolidation plan to put public debt on a sustainable path and to implement policies to sustain the recovery, including by easing the adjustment in the housing and labor markets. The new American Jobs Act would provide needed short-term support to the economy, but it must be flanked with a strong medium-term fiscal plan that raises revenues and contains the growth of entitlement spending.
• In Japan, the government should pursue more ambitious measures to deal with the very high level of public debt while attending to the immediate need for reconstruction and development in the areas hit by the earthquake and tsunami.
Weak Asian markets warn of continued selling pressure
Dow Jones Japan Index is testing long-term support at 50.00. 13-Week Twiggs Money Flow oscillating around zero indicates uncertainty; reversal below zero would warn of rising selling pressure. Breakout below 4800 would offer a target of 35.00*.
* Target calculation: 50 – ( 65 – 50 ) = 35
The Nikkei 225 Index is headed for a test of 7000* after breaking support at 9000 on the weekly chart.
* Target calculation: 9000 – ( 11000 – 9000 ) = 7000
Dow Jones South Korea Index is consolidating between 360 and 410 on the daily chart. 21-Day Twiggs Money Flow below zero warns of strong medium-term selling pressure. Downward breakout would offer a target of 290*.
* Target calculation: 360 – ( 430 – 360 ) = 290
Nikkei breaks support
Japan’s Nikkei 225 Index broke support at 8600, signaling a down-swing to test the 2009 low of 7000*. 13-Week Twiggs Money Flow respect of the zero line warns of selling pressure.
* Target calculation: 8600 – ( 10200 – 8600 ) = 7000
South Korea’s Seoul Composite Index fared better, consolidating between 1700 and 1900. Failure of support is more likely (this is a bear market) and would offer a target of 1500*.
* Target calculation: 1700 – ( 1900 – 1700 ) = 1500
DJ Japan selling pressure
DJ Japan Index is headed for another test of support at 49.50. 21-Day Twiggs Money Flow peaking below zero warns of strong selling pressure. Breach of support would offer a target of 45.50*.
* Target calculation: 49.50- ( 53.50 – 49.50 ) = 45.50
DJ South Korea also displays a strong primary down-trend. Breach of support at 365 would offer a target of 300*.
* Target calculation: 365 – ( 430 – 365 ) = 300
No respite in bear trend against the Yen
A long-term chart shows the dramatic fall of the greenback against the yen over the last three decades. The bear trend continues with breakout below ¥80 signaling further decline to around ¥60* over the next few years. Quantitative easing by the Fed would accelerate the process.
* Target calculation: 80 – ( 100 – 80 ) = 60
Asia slides
The Dow Jones Japan Index closed Monday below last weeks low, indicating a down-swing to 46*. The 21-Day Twiggs Money Flow peak deep below zero warns of strong selling pressure.
* Target calculation: 50 – ( 54 – 50 ) = 46
Dow Jones South Korea Index has already broken short-term support at 380 and is headed for the 2010 low at 330*. 13-Week Twiggs Money Flow below zero confirms strong selling pressure.
* Target calculation: 380 – ( 430 – 380 ) = 330
Dow Jones Taiwan Index has also broken support, at 177, and will test the 2010 low at 168. 13-Week Twiggs Money Flow below zero again warns of strong selling pressure.
* Target calculation: 180 – ( 195 – 180 ) = 165
Yen strengthens
Intervention by the BOJ had limited effect and the greenback is again testing support at ¥76.50. 21-Day Twiggs Momentum oscillating below zero is typical of a strong down-trend. Failure of support would offer a medium-term target of ¥73*.
* Target calculation: 76.50 – ( 80.00 – 76.50 ) = 73.00
Asian pennants
Japan’s Nikkei 225 Index displays a wide pennant formation, suggesting continuation of the down-trend. 21-Day Twiggs Money Flow deep below zero indicates selling pressure. Breakout below 8800 would offer a target of 7800*. Upward breakout is less likely, but would test resistance at 9300/9400.
* Target calculation: 8800 – ( 9800 – 8800 ) = 7800
The Seoul Composite Index displays a similar pennant. Friday’s red candle on stronger volume confirms selling pressure. Downward breakout is likely and would offer a target of 1500*.
* Target calculation: 1800 – ( 2100 – 1800 ) = 1500